Churchill Capital Corp IV (NYSE:CCIV) has lost all of its momentum. As a result, CCIV stock is down more than 50% since late February.
Once trading pennies from $65, Churchill Capital stock is worth one-third its value from two months earlier. One possible explanation for the decline is a simple one. Investors have fallen out of love with special purpose acquisition companies (SPACs).
It reminds me of the 1988 vice-presidential debate between Republican Dan Quayle and Democratic candidate Lloyd Bensten. Quayle said that he had as much experience in Congress as John F. Kennedy in his successful campaign for president in 1960. Bentsen retorted, “Senator, I served with Jack Kennedy, I knew Jack Kennedy, Jack Kennedy was a friend of mine. Senator, you are no Jack Kennedy.”
The point is, Rawlinson might have been intimately involved in the development and building of the Model S, but he’s no Elon Musk. No one is.
CCIV Stock Gets Hit By SPAC Remorse
Kind of like buyer’s remorse, SPAC remorse is real. In the first few weeks of Q1 2021, there were approximately 55 SPAC initial public offerings, with 277 in the entire first quarter. According to Barron’s, there’ve only been six new SPACs so far in Q2 2021, another sign the rose has fallen off the bloom.
The pros acknowledge that despite the poor performance of SPACs so far in 2021, there’s too much capital chasing deals to write off SPACs.
“The whole issue of bubbles has not been a broad bubble, but pockets of bubbles, pockets of enthusiasm that certainly have been focused on SPACs,” said Quincy Krosby, chief market strategist at Prudential Financial. “Money is still going to go in as long as they believe they’re going to have returns, and that’s why we’re looking into the second quarter.”
From the mid-February high of the CNBC SPAC 50 Index, SPACs have lost 18% of their value and are now down year-to-date.
It’s easy to see that CCIV stock was taken down by investor lethargy surrounding the entire SPAC phenomenon.
Who knows if the lethargy remains.
Lucid Is No Tesla
According to page 59 of its February 2021 presentation, Lucid is projected to have $2.2 billion in revenue in 2022 from the delivery of 20,000 vehicles. That ramps up to $22.8 billion in revenue and 251,000 vehicles delivered in 2026.
Let’s consider Tesla at this stage of its development.
In 2007, Tesla had $73,000 in sales. One year later, revenues were $14.7 million. By 2009, they had jumped to $111.9 million. Tesla had an operating loss of $51.9 million in 2009.
Tesla didn’t get to $2 billion in sales until 2013. It was the company’s breakout year after beginning deliveries of the Model S in June 2012. Based on 123.2 million shares outstanding as of Jan. 31, 2014, Tesla had a market capitalization of $4.5 billion [123.2 million shares multiplied by $36.28 share price]. That’s just 2.3x sales.
Meanwhile, based on 1.6 billion shares outstanding after CCIV merges with Lucid, it would have a market cap of $33.0 billion. That’s almost 8x how investors valued Tesla when it hit $2 billion in sales.
The only problem is that Lucid doesn’t have $2 billion in sales at the moment. It has a 2022 projection of $2 billion, with the first deliveries expected in the second half of 2021.
What was Tesla’s valuation when it hit $23 billion in revenue? It likely got there on an annualized basis sometime in the first half of fiscal 2019. Let’s say July 22, 2019. Based on 179.1 million shares outstanding and a share price of $51.14, it had a market cap of $9.2 billion.
Granted, Tesla’s market cap has accelerated greatly since March 2020 (approximately 760%) but that was after its sales had accelerated by 500% between 2015 and 2019.
The Bottom Line
On the one hand, electric vehicles (EVs) have become much more common on America’s streets and highways suggests that Lucid Motors has a potentially bright future.
On the other hand, analysts will get better at valuing EV companies as sales continue to grow, making it harder for Lucid to command a premium valuation compared to Tesla. Of course, if it proves it’s on a pathway to profitability, it becomes more attractive to all kinds of investors, which helps with the valuation.
So, you can pay 25x sales for Tesla, a proven producer of EVs, or you can pay 17x sales for potential sales of $2 billion in 2022.
There’s no question in my mind Tesla’s a much better buy than Lucid Motors and CCIV stock. If that changes, I’ll be sure to let readers know.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.